Razorpay’s FTX 2021 brings to light solutions for a new era of Neo-Banking

The fintech revolution in India continues to gather pace. FTX, Razorpay’s annual flagship event for fintech disruptors, has celebrated innovation and disruption in this sphere, through focussed dialogues with industry leaders, decision makers and experts, since 2019. This year FTX brought together 100+ thought-provoking speakers and was virtually attended by 20,000+ fintech enthusiasts from across the globe.

In ‘NeoBanking: What’s the real problem?’, one of the panels of FTX 2021 featuring Sujith Narayanan, Co-Founder & CEO, Fi Money, Anuj Kacker, Co-Founder, MoneyTap, Rajeev Ahuja, Head – Strategy, RBL Bank, and Shashank Mehta, GM/Head, RazorpayX, Razorpay, talked about the challenges facing fintech companies looking to turn to banking.

Understanding The Purpose

At the very outset, the panellists sought to explain how neobanking might fit into the current Indian context, specifically on the question of their role in a consumer’s financial journey. And as Shashank Mehta, GM of RazorpayX and moderator of the neobanking panel stated, “This is a question that will keep coming up, until neobanks scale to millions of customers.” He also noted that his guests were best placed to reflect on this question, since two of them were directly involved in building products that offer customers neo-banking solutions, while the other is a veteran of the existing banking system.

Speaking about the insights that led to the creation of Fi Money, Sujith Narayanan, Co-Founder and CEO of Fi Money touched upon the emerging confluence between a bank’s core functions of storing money, facilitating transactions, growing investments, and lending money, especially for millennial users. And, after having witnessed the major strides forward that the fintech ecosystem has made in payments and investment spaces, he expects the growth to extend to other products as well. “Over time, we could see leaps happening on the lending side as well”, he said.

A Model For Success

Building on his earlier insights about millennial behaviour, Sujit Narayanan also pitched for neobanks to assume the mantle of growing their customer’s money. This will involve deepening their relationships with consumers, enabling neobanks to better utilize the deposits they collect, as Shashank Mehta pointed out. It’s not a bridge too far, since neobanks have successfully provided payments solutions, innovative credit products and even a reliable store of value, according to Anuj Kacker, Co-Founder, MoneyTap.

And Anuj Kacker believes it’s time for neobanks to step up. “Users’ needs are changing and to complete their needs they are going to different service providers. We need to move from a service provider to being a product provider”, was his assessment of the way forward. He further spoke about the need to constantly evolve and blur the lines between banking and provision of financial services – something which MoneyTap has done through tie-ups with various banks and NBFCs. Rajeev Ahuja agreed with the need for neobanks to bundle their products, which gives them an advantage over conventional banks.

 The Way Forward

In spite of looming challenges, Anuj Kacker sounded optimistic about the role of fintech in revolutionizing the banking industry. “Look at any neobank, regardless of the service they are offering, they are doing nothing but building the financial graph for the customer”, he said, alluding to the greater flexibility fintech products offer, in comparison to a bank’s one-size-fits-all model. What helps budding neobanks, like the one managed by Anuj Kacker, is the surfeit of data they have on consumer finances and transaction behaviour, which can help them upsell to a consumer base with dynamic needs.

This presents the most promising avenue of growth for neo-banks. Rajeev Ahuja joined Anuj Kacker in sounding the alarm bells for the mainstream banking system, especially as the fintech revolution gets more entrenched in our financial system and customers realize they can combine and recombine services across multiple providers. “Just like how the payments business has gone away from the banks, they will face a similar situation in banking if they don’t innovate”, he warned. As part of what he calls a “very monolithic approach to financial services”, Rajeev Ahuja is uniquely well placed to judge the winds of change.

A New Age Solution

To further understand the potential of neobanks to bring about fundamental change in how financial services are offered and used in the country, the panel also deliberated on the main reasons behind the growth of fintech. The primary reason has been the emergence of enabling technology, like the UPI platform, PSD and open banking, which has lowered barriers to entry for upcoming fintech firms. Shifting consumer behaviour has also played a part, as more people are now willing to engage with digital products and deal with all institutions remotely.

As Sujith Narayanan elaborated, it has had knock-on effects on consumer expectations, which has created a virtuous cycle of growth and innovation for fintech products. He notes how changing consumer preferences have forced new companies to prioritize their target audience and focus on particular segments for profitability, honing their offerings accordingly. The clinching factor for the growth of neobanks is the enlarged data footprint of consumers – which was touched upon earlier. With tech tools, fintech companies have the opportunity to collect more data on their customers than was ever possible before. It has given them the ability to offer customers exactly the solution they are looking for.

The Revolution Is Here

The final segment of the discussion focussed on how to translate these structural advantages of the fintech ecosystem into actual growth. Anuj Kacker saw a massive gap in the market for financial services aimed at India’s new rising middle class. “The top of the pyramid is well served. But the middle segment is not well-served”, he said, further reinforcing the earlier point about the death of a one-size-fits-all way of doing business. He spoke about introducing APIs, which can become a common platform for other start-ups, as well as established partners like RBL, who can simply plug-in and take advantage of a sophisticated infrastructure for their fintech products.

Another concern that the gathered panellists hoped to see addressed soon was the limited scope for neobanks to make money, because of several regulatory hurdles. That’s why Anuj Kacker sounded excited about the recent paper by Niti Aayog, that proposes giving banking licenses to fintech companies. “It will be a seed of change and drastically different than what we’ve seen in the past”, he said. All of this will be tested by implementation and adherence to basic business principles. It was perfectly summed up by Rajiv Ahuja, when he posed the core problem statement, “How does the internal economics and cost structures become more flat?”

It’s true that neobanks will be more than just a mere replica of existing banking systems. The road to innovation and seamless consumer experiences is a learning curve though, which brings with it its own pitfalls. But as the panellists at the ‘Neobanking: What’s the real problem?’ session demonstrated, there are no shortage of ideas. And FTX 2021 became the perfect stage to envision the next phase of the evolution of neobanks, and how it might change the way we manage and view money.